Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are influenced by your credit score and debt-to-income ratio, but also by economic policy and the prime rate.
• Home equity loans usually have fixed rates so monthly payments are always the same.
• Aim for a credit score of 700 or higher and a debt-to-income ratio below 36% for the best rates.
• You’ll need thorough property insurance coverage for most home equity loans.
• Online calculators can help you see how much you could borrow and what your payments might be.
Home equity loans are a valuable financial tool if you’re a homeowner looking to get equity out of your home in Lexington, Kentucky. This article will explain how these rates are influenced by both economic trends and personal financial factors. We’ll also provide practical advice on how to qualify for the lowest rates and explore the various uses and alternatives to home equity loans. First step: Make sure you understand what a home equity loan is.
A home equity loan is a second mortgage (assuming you are still making payments on your original home loan). It uses your home as collateral, providing a lump sum of money for a variety of uses. People often use these loans to cover home renovations, education expenses, or to consolidate higher-interest debt. The loan amount is disbursed all at once and is repaid in fixed monthly installments over a period of five to 30 years. You begin the repayment process immediately. Because the loan is secured by your home, interest rates are typically lower than with unsecured personal loans. But the upshot is, if you don’t make your payments, your home could be at risk of foreclosure.
Most home equity loans have fixed interest rates, which means your interest rate and monthly payments will remain the same throughout the life of the loan. To qualify, you generally need at least 20% equity in your home. For example, if your home is valued at $500,000 and your mortgage is $350,000, you have $150,000 in equity. Many lenders offer loans of up to 85% of equity, which would be $127,500 in this example. A home equity loan calculator can help you figure out how much you might be able to borrow.
The Federal Reserve plays a big part in interest rates on different types of home equity loans. Its policies have a ripple effect on the lending market, influencing the prime rate that lenders use as a baseline for the rates they offer customers. But your financial profile is important, too. Each lender will adjust the interest rate it offers based on your credit score, debt-to-income (DTI) ratio, and the amount and term of your loan. This is why it’s important to shop around when looking for a loan and get rate and term information from a variety of lenders.
The interest rate you secure for your home equity loan can make a world of difference in its affordability over time. Even a seemingly small variation in rates can add up to significant savings or expenses. Consider a $100,000 home equity loan with a 15-year repayment term at 8.50% interest. It would have a monthly payment of $984, and total interest of $77,253. But bump that rate up to 9.50%, and you’re looking at a monthly payment of $1,044, with total interest paid rising to $87,961. That’s $10,700 more over the life of the loan.
Here’s another example of a $75,000 loan repaid over 20 years:
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
Predicting interest rate movements with absolute certainty is no easy task, given the multitude of factors at play. However, a glance at the recent history of the prime rate can provide some useful perspective. The prime rate dipped to a mere 3.25% in 2020 and rose to a hefty 8.50% by 2023. You might consider timing your loan application to coincide with favorable economic conditions, but this isn’t always possible. Focus instead on making sure your personal qualifying factors, such as your credit score, are in good shape before you seek a loan.
| Date | Prime Rate |
|---|---|
| 9/19/2024 | 8.00% |
| 7/27/2023 | 8.50% |
| 5/4/2023 | 8.25% |
| 3/23/2023 | 8.00% |
| 2/2/2023 | 7.75% |
| 12/15/2022 | 7.50% |
| 11/3/2022 | 7.00% |
| 9/22/2022 | 6.25% |
| 7/28/2022 | 5.50% |
| 6/16/2022 | 4.75% |
| 5/5/2022 | 4.00% |
| 3/17/2022 | 3.50% |
| 3/16/2020 | 3.25% |
| 3/4/2020 | 4.25% |
| 10/31/2019 | 4.75% |
| 9/19/2019 | 5.00% |
| 8/1/2019 | 5.25% |
| 12/20/2018 | 5.50% |
| 9/27/2018 | 5.25% |
To secure the most favorable home equity loan rates in Lexington, Kentucky, there are a few things you can do before you file your application to ensure you present the best possible face to a lender. Here are four to-dos:
To be eligible for a home equity loan, you must have at least 20% equity in your home. Calculating your equity is simple: Just subtract your mortgage balance from your home’s current value, then divide the product by the current value to arrive at a percentage. If you’re close to 20% but not quite there, wait until you’ve made some more mortgage payments.
For the most favorable home equity loan rate, set your sights on a credit score of 680 or higher. Many lenders even like to see a 700 or above. A high score shows you’re a responsible borrower. Keep your credit score shining by making timely payments, keeping your credit card balances low, and steering clear of new credit inquiries in the months leading to your loan application. Periodically review your credit report and request corrections on any inaccuracies. A history of financial prudence will have lenders lining up to offer you the best deals.
Your debt-to-income (DTI) ratio is a crucial number when it comes to qualifying for home equity loans and getting lower rates. Lenders typically look for a DTI ratio of 50% or less, but the magic number to aim for is 36% or lower. To manage your DTI, you can focus on paying down current debts, increasing your income, or both. A lower DTI can not only help you get approved, but it can also help you get better loan terms.
Property insurance is a must-have for most home equity loans, especially if you live in an area prone to natural disasters. It’s a win-win: You’re protected, and so is your lender, ensuring your home remains a solid investment. When you apply for a home equity loan, your lender will check that you’ve got the right coverage. If there’s any question about what type of coverage you need, feel free to ask the lender for details.
Before you take the leap and apply for a home equity loan, you can use online calculators to get a sense of your potential borrowing power and what your monthly payments might look like. These are a few of our favorites:
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
Use SoFI’s HELOC interest calculator to estimate how much monthly interest you’ll pay .
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
Closing costs for home equity loans usually fall between 2% and 5% of the loan amount. These fees take care of a variety of services, such as the home appraisal, credit reports, document preparation, and title insurance. While no-closing-cost loans are an option, they often come with higher rates.
The interest on your home equity loan could be tax-deductible if you use the funds for significant home improvements, or to build or buy a home. As of 2025, married couples filing jointly can deduct interest on up to $750,000 of qualified home equity loans, while single filers can deduct interest on up to $375,000 worth of loans. To claim this deduction, you must itemize your deductions on your tax return, so you might want to speak with a tax advisor.
Homeowners in Lexington have options when it comes to tapping the equity in their home. A home equity line of credit (HELOC) and a cash-out mortgage refinance are worth considering before you make a firm decision about your borrowing plan.
A HELOC is similar to a credit card in that you have a certain limit you can borrow up to. You only pay interest during the draw period (a HELOC interest-only calculator can be helpful at this time). Then after some time, typically 10 years, you’ll pay back the principal and interest (this is when a HELOC monthly payment calculator is handy).
To qualify, you’ll likely need a credit score of 680 or higher (700 is preferred) and a debt-to-income ratio of less than 50% (less than 36% is ideal). When you consider a HELOC vs. a home equity loan, HELOCs tend to be best for people who aren’t sure exactly how much they will need to borrow or for expenses that will be incurred over time.
A cash-out refinance replaces your existing mortgage with a larger one, providing you with a lump sum based on your home equity. As you consider a cash-out refinance vs. a home equity line of credit, these are some differences: Qualifying for a cash-out refinance is often more accessible than for home equity loans or HELOCs, typically requiring a credit score of 620 or higher and a debt-to-income ratio under 43%. Rates can be fixed or variable, and unlike with a home equity loan or HELOC, you’ll have just one payment to manage.
When you’re looking for a way to borrow based on your home equity in Lexington, it’s important to understand the factors that can influence the rates you’re offered. Building a strong credit score, keeping your DTI ratio in check, and making sure you have enough property insurance are all important steps to getting the best rates. Using online calculators can help you get an idea of how a loan will affect your finances. And remember to seek out offers from multiple lenders to find the best interest rate and terms for your needs.
SoFi now offers home equity loans. Access up to 85%, or $350,000, of your home’s equity. Enjoy lower interest rates than most other types of loans. Cover big purchases, fund home renovations, or consolidate high-interest debt. You can complete an application in minutes.
Unlock your home’s value with a home equity loan from SoFi.
Home equity loans are a smart way to finance a big purchase, cover the cost of a home renovation, or consolidate high-interest debt. Because the loan is secured by your home, interest rates are typically lower than they would be with an unsecured loan.
The monthly payment on a $50,000 home equity loan can fluctuate with the interest rate and loan term. For instance, at a 7.00% interest rate over a 15-year term, you’re looking at around $449 per month. But if the interest rate bumps up to 8.00%, your monthly payment would rise to about $478. This is why it’s important to secure the best home equity loan interest rate you can.
The payment on a $30,000 home equity loan is determined by the interest rate and loan term. For a 20-year fixed-rate loan at 8.00%, for example, the monthly payment would be approximately $251. If you had an interest rate of 9.50%, your monthly payment would rise to $280.
The beauty of a home equity line of credit (HELOC) is its flexibility. During the draw period, which can last 5, 10, or even 20 years, you may only need to pay interest on what you borrow, which isn’t necessarily going to be the full $100,000. If you did use the entire credit line of $100,000, your interest rate for repayment would likely be a variable one. But at an average of 8.00% and a repayment term of 20 years, you would pay $836 per month.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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